October 30, 2010
Book Review: The Bear Book: Survive and Profit in Ferocious Markets
A Short History of Markets with the Accent on the Bear
John Rothchild's writing style is entertaining and the history of bear markets is a useful antidote for excessive bullishness. But don't be misled, the overall direction of the market over hundreds of years is up, you cannot have a succession of bear markets without intervening bull runs and the bulls run harder than the bears do, otherwise the market would not be higher now than a century ago.
Yet the market is an equal opportunity employer, every few years it gives the bears a chance, sometimes a huge chance. The greatest bear raid ever, although not in the stock market proper, also produced the greatest profit ever: John Paulson's fund made $15 billion. When George Soros broke the Bank of England, that too was a bear bet against the British pound. Having a few bearish tools in a bull's arsenal is probably a wise choice.
I have read a large number of books about the market, most by market participants. One interesting feature of The Bear Book is that it gives context to some of those other writings. For example, I recently read William J. O'Neil's "How to Make Money in Stocks" which leaves you with the feeling that O'Neil is invincible. The Bear Book debunks that notion--good but not invincible. Another interesting tie in, Rothchild tells about the killing made on the bear side by "Marty Martino" (an alias?) of Morgan Stanley in 1987 when his six cent puts rose to $53 each. Marty Martino wouldn't disclose how much he made but Gregory Zuckerman tells the tale of John Paulson's $15 billion profit in "The Greatest Trade Ever." John Paulson went short mortgages via CDSs while Martino went short the market via puts.
This is not a how to book but a look at the bear side of the market. I believe all of us unremitting bulls will benefit from taking a look at the other side. I can recommend it.
The Bear Book: Survive and Profit in Ferocious Markets
by John Rothchild
Dow Jones Industrial Average, 1896 - 2009
by Mike Klein
The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
by Gregory Zuckerman
How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition
by William O'Neil